CHANCERY DIVISION

In re FLINT (A BANKRUPT)

See annotated Law Reports version at [1993] Ch. 319

COUNSEL: David Parry for the wife.

David Stockill for the trustee in bankruptcy.

SOLICITORS: Vizards for Robert De Coninck & Co., Crewe; George Green & Co., Cradley Heath.

JUDGE: Nicholas Stewart Q.C. sitting as a deputy High Court judge

DATES: 1992 June 26, 29; July 3

3 July. NICHOLAS STEWART Q.C. read the following judgment. This is an appeal in bankruptcy from a decision of Judge David Roberts sitting in the Shrewsbury County Court. The appeal lies to this court under section 375 of the Insolvency Act 1986. The appellant is Mrs. Brenda Flint, who was represented by Mr. Parry of counsel. The first respondent, represented by Mr. Stockill, is the trustee in bankruptcy of Mrs. Flint’s former husband Mr. Ronald Flint. Mr. Flint is the second respondent but took no part in the appeal or in the hearing in the Shrewsbury County Court. The particular point at issue is whether a transfer of property order made in favour of Mrs. Flint under section 24 of the Matrimonial Causes Act 1973 is an order which was void under section 284 of the Insolvency Act 1986 unless ratified by the court dealing with Mr. Flint’s bankruptcy.

Both counsel have given me considerable help on all aspects of a case which is far from straightforward. A brief history is as follows. Mr. and Mrs. Flint were married in 1969 and in the same year they bought a house at 7, Galway Grove, Shavington, near Crewe as legal and beneficial joint tenants. Two children were born in 1970 and 1972. In January 1986 Mr. Flint left the family home and never returned. On 27 October 1988 Mrs. Flint presented a petition for divorce in the Crewe County Court, based on two years separation and the consent of both parties. In 1989 Mr. Flint started a business which failed and eventually led to his bankruptcy. On 17 February 1989 Mrs. Flint gave notice of intention to proceed with an application for ancillary relief under the Matrimonial Causes Act 1973. In March 1990 a decree absolute was obtained by Mrs. Flint. On 22 May 1990 a bankruptcy petition was presented against Mr. Flint by one of his creditors. On 11 July 1990 there was a hearing of Mrs. Flint’s application for ancillary relief, but for one reason or another it was not a fully effective hearing. On 18 July a transfer of property order, which I shall call “the Crewe order,” was made by consent by Mr. Registrar Shaw in the Crewe County Court which among other matters ordered Mr. Flint within 28 days to transfer all his estate and interest in the house to Mrs. Flint. On 24 July 1990, only six days after the Crewe order, a bankruptcy order was made against Mr. Flint in the Shrewsbury County Court. On 6 September 1990 Mr. Edwin Hunt of Messrs. Pannell Kerr Forster was appointed Mr. Flint’s trustee in bankruptcy.

It is this sequence of events, and particularly the fact that the Crewe order took place between presentation of the bankruptcy petition and the bankruptcy order itself, which has given rise to the issues on this appeal. The bankruptcy order was made before there had been any transfer or other document to implement the Crewe order and in correspondence in late 1990 and early 1991 the trustee indicated a proposed challenge to the validity of the Crewe order under section 339 of the Insolvency Act 1986. Accordingly on 28 February 1991 the trustee issued a notice of motion in the Shrewsbury County Court for an order under section 339 for a declaration that the Crewe order and/or the terms of that order were void by virtue of section 339. It was subsequently appreciated by the trustee and his advisers that this section, which relates specifically to transfers at an undervalue, had no application to a transaction which occurred after presentation of the bankruptcy petition: [*23] see the definition of “relevant time” in section 341(1)(a) of the Insolvency Act 1986.

On 1 March 1991 the trustee swore an affidavit which showed notified creditors’ claims of more than £120,000. On 10 May 1991 Mrs. Flint swore an affidavit dealing with the alleged undervalue for the purposes of section 339. Also on 10 May 1991 there was a first hearing of the trustee’s application, at which the trustee’s notice of motion was amended to drop reliance on section 339 and rely instead on section 284 of the Insolvency Act 1986, subsection (1) of which states:

“Where a person is adjudged bankrupt, any disposition of property made by that person in the period to which this section applies” – which by subsection (3) is the period between presentation of the petition and the vesting of the bankrupt’s estate in his trustee in bankruptcy – “is void except to the extent that it is or was made with the consent of the court, or is or was subsequently ratified by the court.”

On 25 July 1991 there was the first contested hearing of the trustee’s application, at which oral evidence was given by one witness only, Mrs. Flint. Mr. Stockill represented the trustee at that hearing; Mrs. Flint was also represented by counsel (not Mr. Parry) and Mr. Flint took no part at all. I have an agreed note of that hearing. There is also a single typed sheet which apparently sets out the judge’s note of Mrs. Flint’s evidence, but neither side referred me to anything on that sheet. That hearing lasted the day, at the end of which Judge Roberts reserved his judgment. His written judgment was delivered some five months later, the order now under appeal having been made on 16 December 1991. The crucial part of that order, which I shall call “the Shrewsbury order,” is a declaration that the Crewe order and the terms thereof were void against the trustee and that the house was held on trust for the trustee in bankruptcy and Mrs. Flint in equal shares.

Notice of appeal by Mrs. Flint against that order was issued on 13 January 1992. She naturally seeks an order that the disposition by the transfer of property order on 18 July 1990 was valid and effective. The three grounds of appeal may be summarised: (1) the judge was wrong to hold that the Crewe order was a disposition by Mr. Flint to which section 284 of the Insolvency Act 1986 applied at all; (2) he ought to have held that it was a disposition by the court (which is really just another way of putting the first ground of appeal); and (3) if section 284 was applicable, the judge failed properly to exercise his discretion whether to ratify the transaction and the matter should be remitted to the Shrewsbury County Court for further consideration.

The request for remission to the Shrewsbury County Court was based on the supposition that even if I set aside the exercise of Judge Roberts’s discretion I had no power to substitute my own. However, during the course of the hearing it became clear that by virtue of rule 7.49 of the Insolvency Rules 1986 (S.I. 1986 No. 1925) I did have that power and both parties invited me, if I was against Mrs. Flint on the first two grounds but with her on the third, to exercise my own discretion rather [*24] than send the matter back to the County Court and involve the parties in a further avoidable hearing.

It was common ground that (1) section 284 was the only relevant provision to be considered and (2) if the order by the Crewe County Court was a disposition by Mr. Flint, it was made at a time when caught by section 284. Mr. Stockill also accepted, entirely correctly, that although in the court below it had been accepted by counsel then acting for Mrs. Flint that as a matter of law the order was caught by section 284, he could not hold Mrs. Flint to that concession. I therefore consider the first ground of appeal. If I decide in Mrs. Flint’s favour that section 284 has no application to the Crewe order, the transfer of property order is fully effective against the trustee and the appeal will be allowed. There will strictly be no need to consider the third ground of appeal, as no question of exercise of discretion would arise.

Mr. Parry’s submission on this first ground is essentially quite simple. He says that section 284 had no application because the Crewe order was not for the purposes of that section a “disposition by the person adjudged bankrupt,” i.e. Mr. Flint. In support he referred me to Thwaite v. Thwaite [1982] Fam. 1 and in particular the acceptance by the Court of Appeal, as binding upon them, of the statement of principle by Lord Diplock in the opinion of the Judicial Committee of the Privy Council in de Lasala v. de Lasala [1980] A.C. 546, 560:

“Financial arrangements that are agreed upon between the parties for the purpose of receiving the approval and being made the subject of a consent order by the court, once they have been made the subject of the court order no longer depend upon the agreement of the parties as the source from which their legal effect is derived. Their legal effect is derived from the court order …”

Mr. Parry said that accordingly it did not matter precisely what happened before the order, for example, whether before the order was made there was any contract which might have amounted to a disposition in equity. Any agreement between the parties, as shown by Thwaite v. Thwaite, was superseded by the order of the Crewe County Court. It followed, he argued, that as the disposition of Mr. Flint’s interest derived from the order and not from agreement between the parties, it was not made by Mr. Flint for the purposes of section 284.

Mr. Stockill sought to persuade me that what the Court of Appeal said in Thwaite v. Thwaite about the effect of consent orders was strictly obiter, because the husband in that case had not been making any attack on the order on contractual grounds. However, I do not think that is right. The Court of Appeal’s view of the effect of consent orders under the Matrimonial Causes Act 1973 was the foundation of its upholding the judge’s dismissal of the husband’s appeal against the registrar’s refusal to vary the consent order.

That does not, however, necessarily undermine Mr. Stockill’s overall argument in relation to section 284. Mr. Stockill did not base his submissions on this point on the fact that the Crewe order was a consent order. That did not, he said, make any difference. He was not looking back before the court order, which in his submission was a disposition [*25] and was made by Mr. Flint. In the first place, he pointed to the anomalous position which would otherwise arise. He submitted that the previous bankruptcy law, governed by the Bankruptcy Act 1914, involved two stages: the first stage was that prior to the act of bankruptcy and the second stage from that point onwards. Settlements or other dispositions by the bankrupt during the first stage could in certain circumstances be avoided. However, there was no need to avoid dispositions made during the second stage, because upon the adjudication of bankruptcy the title of the trustee in bankruptcy related back to the act of bankruptcy and so the settlement or disposition by the bankrupt could not have any effect because he had not been the owner of the property able to make it.

The new law in relation to personal insolvency, governed mainly by the Insolvency Act 1986, involved three phases: (1) up to presentation of a petition; (2) from presentation up to the making of a bankruptcy order; and (3) after the bankruptcy order, when the trustee acquires title to the bankrupt’s estate, but not so as to relate back to the period before the order.

In certain circumstances, dispositions at an undervalue during phase might be challenged under section 339; during phase 3 it was no longer possible to make effective transfer of property orders because the bankrupt’s estate was no longer vested in him but in the trustee. If Mr. Parry were right, it would only be during phase 2, which includes the present case, that an effective transfer of property order could be made which was then invulnerable to attack under the insolvency legislation. The thrust of these submissions by Mr. Stockill was that there was no sensible rationale to support such a distinction between phases 1 and 3 on the one hand and phase 2 on the other.

I agree that such an anomaly, though it might always have to yield to the plain meaning of a statutory provision, is some support for Mr. Stockill’s position. It certainly leads to serious questioning whether, consistently with the aims and policy of the personal insolvency legislation, a transfer of property order under section 24 of the Matrimonial Cause Act 1973 can sensibly be regarded for the purposes of section 284 as a disposition not made by the bankrupt.

Mr. Stockill also cited, though principally in support of his submissions on the exercise of discretion under section 284, In re Abbott (A Bankrupt), Ex parte Trustee of the Property of the Bankrupt v. Abbott (P.M.) [1983] Ch. 45, in the Divisional Court of the Chancery Division, which prior to the Insolvency Act 1986 exercised appellate jurisdiction in bankruptcy matters. That court, consisting of Sir Robert Megarry V.-C. and Peter Gibson J., had to decide whether a wife in whose favour a property adjustment order had been made by consent under section 24 of the Matrimonial Causes Act 1973 was a “purchaser for valuable consideration” for the purposes of section 42 of the Bankruptcy Act 1914. If she was, that was an effective answer to what would otherwise have followed under section 42, that the relevant part of the consent order would have been void against the trustee in bankruptcy because it had been made within two years of the husband’s bankruptcy.

Section 42 of the Act of 1914 was affected by a special provision in section 39 of the Act of 1973 which expressly provided that the fact that [*26] a settlement or transfer of property had to be made in order to comply with a property adjustment order should not prevent that settlement or transfer from being a settlement of property to which section 42 applied. Section 39 is now applied, by amendment, to sections 339 and 340 of the Act of 1986 but has no equivalent so far as section 284 is concerned.

Nevertheless, even allowing for that difference, it is worth noting that in In re Abbott the judge had held that the consent order itselfwas a settlement for the purposes of section 42. That conclusion was not challenged in the Divisional Court, where the appeal on the critical point, whether the wife was a purchaser for valuable consideration, simply proceeded on the assumption that it was correct. It is not binding on me. But it does at least show that Peter Gibson J. and Sir Robert Megarry V.-C. accepted, though without the benefit of any argument, as a reasonable proposition a conclusion which is essentially on all fours with the one that Mr. Stockill is inviting me to reach in relation to section 284. For a settlement to be void under section 42 it was necessary for “the settlor” to have become bankrupt within two years. Accordingly, for the court order to have been a settlement of the purposes of section 42 it must have been a settlement by the bankrupt, since otherwise he could not have been the settlor and the section could have had no application.

If the relevant part of the court order in In re Abbott was a settlement for the purposes of section 42, the relevant part of the Crewe order, i.e. the part ordering transfer of his interest in the House, would likewise be a disposition by Mr. Flint. In my view that is the position. The first paragraph of the Crewe order stated: “Within 28 days of the date of this order [Mr. Flint] do transfer unto [Mrs. Flint] all his estate and interest in the [house].” Leaving aside section 284, such an order would have the effect that Mr. Flint’s equitable interest would pass immediately. That is a relatively straightforward example of equity treating as done that which ought to be done, the same principle by which a purchaser under a specifically enforceable contract acquires an equitable interest upon contract and before completion. What was treated as done in the present case was a transfer by Mr. Flint of all his interest in 7, Galway Grove.

This conclusion does not, I emphasise, depend upon the Crewe order being a consent order. If the relevant parts of the order had been the result of a contested application my conclusion on this further point would have been exactly the same. As soon as the court makes its order, whether or not by consent, the transfer of property in accordance with the order becomes compulsory in a way that it was not immediately before the making of the order. But the fact that it is then compulsory, and that in the case of a consent order any previous agreement between the parties is superseded, does not in any way prevent its being a disposition by the owner of the property in question, in this case, Mr. Flint. It follows, therefore, that once Mr. Flint was adjudged bankrupt, the disposition of Mr. Flint’s interest in the house became void under section 284 unless subsequently ratified by the court, both counsel agreeing that “the court” mentioned in section 284(1) did not include the Crewe County Court. [*27]

That brings me on to the second ground of appeal, which is a challenge to Judge Roberts’s refusal to ratify the disposition of Mr. Flint’s share of the house. A decision whether or not to ratify a disposition under section 284 is of course a matter of discretion, though like all judicial discretions, it must be exercised reasonably in accordance with principle and in particular must take proper account of all relevant considerations and exclude the irrelevant. I was referred to Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation [1948] 1 K.B. 223, a well known case setting out now well known principles; and to a passage in the judgment of Sir Wilfrid Greene M.R. in Egerton v. Jones [1939] 3 All E.R. 889, 891-892, dealing with the circumstances in which it is the duty of an appellate court to interfere with the discretion exercised by the court below. Of course, I accept the guidance of both cases unhesitatingly.

On this part of the case, Mr. Parry referred me first to the notes in The Supreme Court Practice 1991, vol. 1, p. 899, para. 59/1/33 and then to Eagil Trust Co. Ltd. v. Pigott-Brown [1985] 3 All E.R. 119, and particularly a passage in the judgment of Griffiths L.J., at p. 122, dealing with a judge’s duty to give reasons. There can be no arguing with what is said there, but criticism of a judgment for failure to give full reasons to support the exercise of a discretion does not necessarily mean that the discretion has not been properly exercised.

Mr. Stockill cited a decision of the Court of Appeal in Hudhud Shand Ltd. v. Johnston Pipes Ltd. (1989) 5 Const.L.J. 209, in which an official referee had vacated a date for trial of a preliminary issue without delivering judgment or giving any reason for his decision. The Court of Appeal held that it could not be said that the official referee had so erred in the exercise of his discretion that any other order should have been made. Mr. Stockill drew attention to two passages in the judgment of the court delivered by Slade L.J., first, at p. 212:

“in the light of the decision of this court in Eagil Trust Co. Ltd. v. Pigott-Brown [1985] 3 All E.R. 119, it is common ground that this court must accept that the learned judge took into account all relevant considerations unless the opposite can be demonstrated. It is also common ground that this court can interfere with the exercise of his discretion, if at all, only within the narrow limits established by decisions of the House of Lords, which are too well known to need recapitulation in this judgment.”

And then, at p. 214:

“The question for us is not whether we would necessarily have made the same order as did the learned judge. The question is whether there are sufficient grounds for us to interfere with the exercise of his discretion. In due course, after the limited discovery contemplated by his order has taken effect, it may well be appropriate for the judge to decide the defendants’ striking out application or an appropriately formulated preliminary issue or both. Meanwhile I can for my part see no sufficient grounds for interfering with the exercise of his discretion on 29 July 1988. In my judgment he cannot be said [*28] to have erred in principle. His decision cannot be said to have been perverse. Neither can it be said to have been plainly wrong.”

It would certainly be fair to say that in the present case the judgment in the court below was not a very full judgment. But that is not in itself a reason for interference by this court on appeal. It is necessary to consider what, if any, are the objections of substance.

One specific objection was put forward by Mr. Parry on the basis of a short passage in the judgment which included the statement: “such an order” – i.e. the Crewe order – “is a disposition of property when it records a voluntary transfer by the husband …” and in particular on the basis of the judge’s use of the word “voluntary.” Mr. Parry said that the transfer was voluntary neither in the sense that it was of Mr. Flint’s own volition nor in the sense that it was for no consideration. I think that in using the word “voluntary” the judge was just drawing a distinction between the prior agreement of the parties and the actual court order. Whether or not that is right, I cannot see the slightest indication in that passage of any misunderstanding by the judge about what had actually happened and the practical result of the order.

Mr. Parry also drew attention to the fact that the judge was not referred to any authorities and expressly stated in his judgment that he had no guidelines as to what factors should influence him in coming to his decision. Though perhaps it is not a major point, it is clear that the judge was at least shown the note to section 284 at paragraph 3-154 of Muir Hunter on Personal Insolvency (1988). It is also relevant to observe that section 284 is a new provision in personal insolvency and there do not yet appear to be reported cases offering guidelines for the exercise of the discretionary jurisdiction under that section. It is also clear, however, that the section is closely modelled on what used to be section 227 of the Companies Act 1948 and is now section 127 of the Insolvency Act 1986. Though the particular facts of the present case could never arise in the context of a corporate insolvency, in broad terms the similarities between corporate and personal insolvency in the context of dispositions of property after presentation of the winding up or bankruptcy petition, as the case may be, are far greater than any differences. It would therefore be legitimate to look for guidelines in cases concerning sections 227 of the Act of 1948 and 127 of the Act of 1986.

Mr. Parry referred me to a number of cases on section 227: In re Steane’s (Bournemouth) Ltd. [1950] 1 All E.R. 21; In re A. I. Levy (Holdings) Ltd. [1964] Ch. 19 and In re Clifton Place Garage Ltd. [1970] Ch. 477. In particular those cases showed that in exercising its discretion under section 227, and by analogy under section 284, the court should consider what is just and fair in all the circumstances, having particular regard to good faith and honest intention. There can be no doubt about the correctness of that approach. But I do not see how it is demonstrated on the material before me that Judge Roberts failed to take proper account of those considerations. It seems to me that unless there is material to indicate otherwise, it is reasonable to assume that a judge has taken account of such obvious factors as the good faith and honest [*29] intention of the parties. At the most fundamental level, it is hardly realistic to suggest that a judge did not approach the matter with the aim of achieving what was just and fair in all the circumstances. Mr. Parry also referred to the rule in Ex parte James; In re Condon (1874) L.R. 9 Ch.App. 609, to the effect that the trustee as an officer of the court must do what is just and right and not take any unfair advantage. But he did not seriously resist the suggestion that his submissions on the rule did not in the end add to what he had to say more generally about what was just and equitable in the circumstances of the case.

The decision in In re A. I. Levy (Holdings) Ltd. [1964] Ch. 19, was relied upon by Mr. Parry to support a submission that the judge had failed to take account of the fact that Mrs. Flint took on liabilities of Mr. Flint’s estate and that it was for the benefit of the estate that the position was crystallised, particularly with regard to possible future maintenance payments. I do not see how it is shown that the judge failed to take account of those considerations. He had the Crewe order before him, after all, and it is clear on the face of the order that liabilities were being taken over by Mrs. Flint. The material before the judge included an affidavit of Mrs. Flint, sworn on 10 May 1991, containing information about the financial background which, together with the Crewe order, meant that the judge could see the financial implications of the Crewe order in sufficient detail for the purposes of the exercise of his discretion under section 284. Mrs. Flint also gave oral evidence which confirmed and expanded what was in her affidavit. There is nothing to demonstrate that the judge left those matters out of the balance.

Mr. Parry even went so far as to submit that as a result of the Crewe order Mr. Flint’s creditors were better off than they otherwise would have been. That slightly surprising proposition does not bear close examination. As Mr. Stockill pointed out, for example, even if it is assumed in Mrs. Flint’s favour that the £17,000 mentioned in the recital to the Crewe order was a sum in which Mrs. Flint had a half beneficial share, she did not give up any claim in respect of that item. That item on its own puts a fatal dent in the notional balance sheet which Mr. Parry argued made the order favourable to the creditors.

I can see no indication that the judge failed to consider the overall effect of the Crewe order and give it proper weight. Nor do I think it can be said that his decision was perverse or obviously wrong, which would be a rather startling proposition in circumstances where, as Mr. Stockill observed, a man owing over £120,000 makes a disposition of about £20,000 – in very broad terms – six days before being made bankrupt. Moreover, though it has not been suggested that the consent order involved any scheme on the part of Mr. or Mrs. Flint, in the sense of anything underhand, it is a fact that the impending risk of bankruptcy was known to Mrs. Flint, and of course to Mr. Flint, at the time the Crewe order was made.

There is accordingly no basis on which I can properly interfere with the judge’s decision. If there had been grounds for doing so, I should certainly have exercised my own discretion rather than involve the parties in a further and unnecessary hearing in the Shrewsbury County Court. But on the conclusions I have reached the question of substituting my [*30] own discretion does not arise and I do not think it would be helpful to the parties for me to examine the additional submissions made to me on that aspect of the case. I therefore dismiss this appeal.

My decision will obviously be a hard blow to Mrs. Flint, who no doubt will also feel that her difficulties now are the result of the fairly long delay, for which I do not know the reasons, before her application for ancillary relief was brought to a proper hearing. Like the judge, I have great sympathy for her position but I should certainly not wish her to assume that if the discretion had in the end been mine I should have reached a different conclusion from Judge Roberts.

Appeal dismissed.